Can someone tell me how did they get 7 year forecast of real returns and why we calculated it?
they are reducing the concensus forecast from exhibit 16 by the rate of inflation of 3.5% to get the ‘real return’
Treasury bill consensus 4.2% - 3.5% inflation = 0.7% real return
sorry for hijacking this thread with a silly q: when we calculate the sharpe ratio would we use tbills or tbonds?
…i m thinking tbills is that right?
It depends on the measurement period.
riskfree by definition is short term ( no duration effects ) , so rf=tbills not tbonds which would have at least a yield curve effect embedded . I believe Fama shows a 30 day tbill rate on their website as riskfree